Why Did US Stocks Struggle in Early September? Key Market Trends to Watch
Market Overview
The first week of September (9/4-9/8) saw global equity markets predominantly in negative territory. Stateside, the S&P 500 retreated 1.29%, the Dow Jones Industrial Average slipped 0.75%, while the tech-heavy Nasdaq 100 declined 1.36%. European benchmarks followed suit with the STOXX 600 shedding 0.76%.
This market weakness reflects growing investor caution amid evolving macroeconomic conditions and sector-specific challenges.
1. Robust Economic Data Fuels Fed Tightening Expectations
September 6 data revealed surprising strength in the US services sector, with the ISM Non-Manufacturing PMI climbing to 54.5 - a six-month high. The employment and new orders components showed notable improvement, while input costs accelerated their upward trajectory.
Complementing this, initial jobless claims for the week ending September 2 dropped to 216,000 - the lowest reading since February and below consensus estimates. These indicators collectively suggest labor market resilience, reinforcing expectations for continued Federal Reserve policy tightening.
Market pricing now reflects over 40% probability of a November rate hike, with expectations for potential easing pushed back to June 2024 from May previously.
Market Perspective:
The services sector's strength suggests persistent inflationary pressures, likely prompting hawkish Fed rhetoric at the September meeting. However, absent upward revisions to the dot plot, markets anticipate at most one additional hike in 2023. Attention is shifting to the duration of elevated rates and the timing of potential policy easing.
2. Energy Sector Rebounds as Oil Prices Surge
September 5 saw Saudi Arabia and Russia extend voluntary production cuts through December 2023, with reductions of 1 million and 300,000 barrels per day respectively. This announcement propelled Brent crude above $90/bbl for the first time since November 2022, marking a 20% gain since July 1.
The energy sector has benefited disproportionately, with the S&P Energy Select Sector Index gaining over 12% this quarter and 3% in September, outperforming broader markets. Industry leaders ExxonMobil (XOM) and Chevron (CVX) have advanced nearly 4% month-to-date.
Goldman Sachs commodities research suggests these production cuts could drive Brent to $107/bbl by end-2024, though recession risks in developed markets present a key downside risk to this outlook.
Market Perspective:
Despite recent gains, energy sector valuations remain reasonable at ~12x P/E. The oil price rally may exacerbate inflationary pressures, with August CPI data (due this week) expected to reflect gasoline price impacts. This release represents the final major data point before the Fed's September policy meeting.
3. Tech Sector Headwinds: Apple and NVIDIA Under Pressure
The Nasdaq 100's 1.36% weekly decline reflected both rising rate expectations and significant underperformance from key constituents Apple (AAPL) and NVIDIA (NVDA), which fell approximately 6% and 6.1% respectively.
Apple faced multiple challenges including EU regulatory actions, Chinese market restrictions, and competitive pressure from Huawei's new Mate60 Pro. NVIDIA contended with market concerns about AI sector valuations and unfounded financial reporting allegations. The Philadelphia Semiconductor Index declined ~3% on the week.
EPFR data showed $1.7 billion in net outflows from tech stocks in the week ending September 6 - the first withdrawal in 11 weeks - potentially signaling waning enthusiasm for AI-related investments.
Market Perspective:
Following the Nasdaq 100's ~40% YTD advance, elevated valuations have increased sensitivity to negative catalysts. This week's focus includes August inflation data and Apple's product event. While positive surprises could support a rebound, markets likely remain cautious ahead of the Fed meeting, with elevated volatility expectations.